Monday, January 14, 2019

Jim Parker, from DFA Australia Limited, shares some more wonderful insights and links:

As
a new year begins, the financial media typically is full of speculative
commentary about what the coming 12 months will hold for markets. The
assumption underlying this content is that someone, somewhere has a reliable
crystal ball.

The
truth, however, is that everyone is guessing. A few guesses turn out to be
right. Most turn out to be wrong. And that’s because those making these forecasts
fail to account for the random nature of events. Ultimately, it’s not a good
way to invest.

Everywhere you look at this time of the year, someone is telling you what stocks to buy in 2019, the chances of a recession, the likely path of interest rates and what will happen to currencies. These forecasts are really guesses and are often just a pitch to get you to trade. In fact, Barry Ritholtz sees forecasting as an exercise in futility.

The problem with market forecasts goes beyond their inaccuracy. The real issue is their failure to recognise the randomness of the world. https://bloom.bg/2QBfQUf

Have you noticed how much media commentary about the market outlook is gloomy? We’re told to brace for everything from meltdowns to depression. Part of this is economic, as research shows human beings are wired to give greater weight to bad news than good. This means there’s an in-built market for fear.

Our in-built loss aversion makes us more likely to click on bad news headlines. Keep that in mind when you are confronted with 2019 ‘outlooks’. http://bit.ly/2RzZsDV

So much media commentary around markets is just noise. For example, at the start of every year you’ll see articles saying it’s now “a climate for stock pickers” or that “the rules have changed”. Veteran investor and fund manager David Booth has heard it all and provides a refreshing perspective on market forecasting.

Market forecasts are ubiquitous around this time. But this veteran fund manager says most are just noise designed to get you to trade. http://bit.ly/2REnm1e

DFA Australia Limited

This section may provide links to the sites of independent third parties which contain information, articles and other material prepared by persons who are not employees or representatives of DFA Australia. These links are for your convenience only. These third parties are not affiliated with DFA Australia, and DFA Australia does not control or endorse and is not responsible for any information, opinions, representations or offers on these linked sites. DFA Australia is not responsible for the contents or accuracy of this material, and the opinions expressed in this material should not be taken to be the opinions of DFA Australia.

Monday, April 24, 2017

In the face of constant 24/7 news headlines,
reflective moments like those offered on Anzac Day each year remind
us that the most significant things in life are not necessarily what
happened in the last five minutes.A similar long-term focus is required in the world of
investment, where our attention is constantly dragged from one
instant headline to the next. That’s why taking a break from the news
media can serve as a tonic for frayed nerves.

While news is a source of
instant information, it rarely provides meaning. That comes from
longer-term reflection and analysis and an awareness of
slow-moving, but deeper, change. Indeed, this article suggests
that taking a break from the instant hit of fast news can ease
anxiety, promote insight and restore a long-term focus.

Have you ever calculated how
many hours you spend scanning headlines on Facebook or watching
financial news or getting grumpy reading about politics? This
writer did and was shocked by the result. In this article, he
argues you should see news mainly as entertainment geared to keep
you watching so that it makes money.

Depressed by the news? That’s
the point. The aim of the media is to keep you watching. http://bit.ly/2oiT8Pj

There is no shortage of instant
information these days. The bigger question is over the quality
of what’s on offer. The firehose of news and opinions about the
news threaten to overwhelm many investors. In response, this
writer suggests two responses—taking a historical view and
filtering out the noise.

Wednesday, June 29, 2016

By virtue of necessity, the media works on a day-to-day
horizon when covering financial markets. For most investors, though, the
more important horizon is measured in a matter of years.

Referendums like “Brexit”, elections and geopolitical events can look
momentous if you assess them via the short-term market reaction. But
taking a step back from the noise can also provide a much needed
perspective.

When markets fell heavily after the recent Brexit vote
in the UK, one US advisor was awoken by a client shouting down the
phone that the Dow was down 500 points. The advisor’s response is a
classic case of the benefit of not fixating on daily moves in the
indices.

Day-to-day market moves may be interesting, but they
may not be so important if your horizon is in years. http://nyti.ms/28ZEy9a

Brexit, China, oil, elections, negative interest
rates….there seem to be plenty of news headlines to lose sleep over
at the moment. So what do you do? As it turns out, the same rules of
thumb we use to improve our own sleeping habits can be applied to our
investment portfolios.

When markets are volatile, there can be an
overwhelming urge to “do something”, but what exactly? There are as
many opinions out there as there are portfolios. But what if you just
took a deep breath and didn’t do a thing? This writer provides eight
useful points of perspective.

When markets are rocky, the immediate impulse is to
“do something”. But there’s a better response. http://nyti.ms/293tHOA

Monday, February 01, 2016

It’s
been a volatile start to 2016 in financial markets. Worries over China, US
interest rates and falling commodity prices have unnerved many investors.

How
should you respond to all those scary headlines? This week’s Coffee Break
highlights the importance of having a financial plan…and sticking to it.

Listen to Your PlanOne large investment bank says “sell everything”. Another says “this is a buying opportunity”. Who should you listen to at a time like this? In his latest New York Times column, Carl Richards suggests this is when having a clearly articulated financial plan pays off.Market volatility can be hard to take. But having and sticking to a financial plan can make the ride easier.http://nyti.ms/1OXg0d4

Responding to VolatilityIt’s understandable that people feel helpless and confused during periods of extreme market volatility. But there are a few things you can do to ease your nerves, like turning off the TV, looking at your big picture and reacquainting yourself with your financial plan. Robin Powell explains.Tough markets can trigger unwelcome emotions. Instead of acting on them, why not review your investment plan?http://usat.ly/1JD2mPv

It's Not All in the TimingA common temptation during down markets is to retreat to cash until the storm passes. It sounds good on paper, but people who attempt to time the market often forget they have to get two decisions right—when to get out and when to get back in again. The better decision is often to do nothing.Thinking of timing the market to wait out the volatility? Remember, you have to get two decisions right.http://yhoo.it/1RMgAA9Jim Parker is a VP with DFA Australia Ltd and kindly allows us to share his weekly newsletter

Tuesday, August 25, 2015

Global markets are providing investors a rough ride at the moment, as the focus turns to China's economic outlook. But while falling markets can be worrisome, maintaining a longer-term perspective makes the volatility easier to handle.

A typical response to unsettling markets is an emotional one. We quit risky assets when prices are down and wait for more "certainty".

These timing strategies can take a few forms. One is to use forecasting to get out when the market is judged as "over-bought" and then to buy back in when the signals tell you it is "over-sold".

A second strategy might be to undertake a comprehensive macro-economic analysis of the Chinese economy, its monetary policy, global trade and investment linkages and how the various scenarios around these issues might play out in global markets.

In the first instance, there is very little evidence that these forecast-based timing decisions work with any consistency. And even if people manage to luck their way out of the market at the right time, they still have to decide when to get back in.

In the second instance, you can be the world's best economist and make an accurate assessment of the growth trajectory of China, together with the policy response. But that still doesn't mean the markets will react as you assume.

A third way is to reflect on how markets price risk. Over the long term, we know there is a return on capital. But those returns are rarely delivered in an even pattern. There are periods when markets fall precipitously and others where they rise inexorably.

The only way of getting that "average" return is to go with the flow. Think about it this way. A sign at the river's edge reads: "Average depth: one metre". Reading the sign, the hiker thinks: "OK, I can wade across". But he soon discovers the "average" masks a range of everything from 50 centimetres to five metres.

Likewise, financial products are frequently advertised as offering "average" returns of, say, 8%, without the promoters acknowledging in a prominent way that individual year returns can be many multiples of that average in either direction.

Now there may be nothing wrong with that sort of volatility if the individual can stomach it. But others can feel uncomfortable. And that's OK too. The important point is being prepared about possible outcomes from your investment choices.

Markets rarely move in one direction for long. If they did, there would be little risk in investing. And in the absence of risk, there would be no return. One element of risk, although not the whole story, is the volatility of an investment.

Look at Australian share market's benchmark S&P/ASX 300 accumulation index. In the 35 years from 1980 to 2014, the index has registered annual gains of as high as 66.8% (in 1983) and losses of as much as 38.9% (in 2008).

But over that full period, the index delivered an annualised rate of return of 11.6%. To earn that return, you had to remain fully invested, taking the unsettling down periods with the heartening up markets, but also rebalancing each year to return your desired asset allocation back to where you want it to be.

Timing your exit and entry successfully is a tough ask. Look at 2008, the year of the global financial crisis and the worst single year in our sample. Yet, the Australian market in the following year registered one of its best-ever gains.

Now, none of this is to imply that the market is due for a rebound anytime soon. It might. It might not. The fact is no-one can be sure. But we do know that whenever there is a great deal of uncertainty, there will be a great deal of volatility.

Second-guessing markets means second-guessing news. What has happened is already priced in. What happens next is what we don't know, so we diversify and spread our risk to match our own appetite and expectations.

Spreading risk can mean diversifying within equities across different stocks, sectors, industries and countries. It also means diversifying across asset classes. For instance, while shares have been performing poorly, bonds have been doing well.

Markets are constantly adjusting to news. A fall in prices means investors are collectively demanding an additional return for the risk of owning equities. But for the individual investor, the price decline only matters if they need the money today.

If your horizon is five, 10, 15 or 20 years, the uncertainty will soon fade and the markets will go onto worrying about something else. Ultimately what drives your return is how you allocate your capital across different assets, how much you invest over time and the power of compounding.

But in the short-term, the greatest contribution you can make to your long-term wealth is exercising patience. And that's where your advisor comes in.

Jim Parker, from Dimensional, has put together a special one-off edition of the Coffee Break brings together some useful perspectives on current market volatility.

Coffee Break:
Avoiding Meltdown

It’s
one of those rare times when financial news moves from the business pages to
the front page. “Market meltdown” makes for a great headline. But for
individual long-term investors the biggest danger is an emotional meltdown. [Click on headings or use links below.]

Deep economic and market analysis are not really what most
investors need at times like this. Instead, the most useful attributes
are discipline, diversification, patience and self-knowledge. Veteran
journalist Jason Zweig, who’s seen it all before, lists five things you
shouldn’t do now.

Market volatility can be hard to take, but the more
attention you pay to day-to-day fluctuations the more your emotions take
over. If you need the money tomorrow, you might have cause to worry. But
for most of us, there will be many more market cycles to come. So don’t
watch.

With our exposure to China, Australia has been caught up
in the market falls. Dipping into and out of the market may seem
tempting at this time, but listen to another veteran financial journalist
Michael Pascoe. People who panic only risk making it worse for
themselves.

Monday, July 06, 2015

Each week Jim shares a few interesting
links from the web and is happy for them to be posted here.

Before decimal currency, many of us remember our
grandparents saying that if you take care of the pennies, the pounds will
take care of themselves. These days we have dollars and cents, but the
lesson is still the same.
Basically, the lesson is that little things count in building wealth. On
their own, the details may seem unimportant, but paying attention to them
pays off in the long term.

This week’s Coffee Break looks at ways of spending less and saving more.
While we don’t necessarily endorse everything in these links, they may
prove handy as conversation starters.

Do you ever look at your credit card statement and
find yourself telling stories about your impulse purchases to make
yourself feel better? It’s natural to want to rationalise our
expenditure. But Carl Richards says we should focus on the numbers
themselves as they don’t lie.

Saving money begins with understanding what you can
and can’t control. Just sticking to essential purchases may
work, but it’s also important you don’t put yourself in a
straitjacket. In any case, it’s sometimes the little things that have
the biggest impact.

Small changes in your spending patterns can make a big
difference to your savings pile. It may be as simple as giving up
buying coffee each day or locking up your credit card for a month.
Check out this useful ready reckoner from the Australian Securities and
Investment Commission.

Monday, March 23, 2015

Jim Parker's Interesting Links from the
WebMany
investment gurus say they can 'beat' the market. But do they do it
consistently, what risks are involved and what’s the result after costs?

In this week’s Coffee
Break, we feature articles showing that investors are better off starting with
the aim of getting the capital market rate of return.Beating the
MarketSome
fund managers will always beat benchmarks in any year. But how many do it
consistently? And when they do, how much is due to skill or plain good luck? A
new survey, published in the NY Times, asks those questions.Mission
ImpossibleEven
Warren Buffett admits he doesn’t beat the market all the time. If he did, he
would eventually “become” the market. This study shows the arithmetic behind
the idea that no investor can outperform the market forever.Never a Stock
Picker’s Market‘Alpha’
is the extra return an investor gets over a benchmark due to skill. The
problem, says Noah Smith, is that what is identified as ‘alpha’ is often just
‘beta’ or the return the market would have given you anyway.Jim Parker is a Vice President at DFA Australia Limited.